DOCUMENTS 
DEPT. 


BOBl'lZ'NVP'lVd 

S.13:>IBI\[ 


SUMMARY  OF  REPORT 


OF  THE 


FEDERAL  TRADE  COMMISSION 


ON 


COMBED  COTTON 
YARNS 


April  14,  1921 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1921 


SUMMARY  OF  REPORT 


OF  THE 


US   FEDERAL  TRADE  COMMISSION 


ON 


COMBED  COTTON 
YARNS 


April  14,  1921 


WASHINGTON 
GOVERNMENT  PRINTING  OFFICE 

1921 


l4T^f 


[p:urvii 


UMENrS 
DEPT. 


FEDERAL  TRADE  COMMISSION. 


Huston  Thompson,  Chairman. 
Nelson  B.  Gaskill. 
John  Garland  Pollabd. 
Victor  Murdock. 
John  F.  Nugent. 

J.  P.  YoDER,  Secretary. 


.•    e      •  • 


LETTER  OF  SUBMITTAL. 


Federal  Trade  Commission, 

Washington^  April  IJf^  1921. 
To  the  Speaker  of  the  House  of  Representatives. 

Sir  :  Submitted  herewith  is  a  report  on  Combed  Cotton  Yarns  made 
in  response  to  a  resolution  of  the  House,  April  5,  1920  (Res.  No. 
451,  66th  Cong.,  2d  sess.) ,  which  treats  of  the  increase  in  the  prices  of 
such  yarns  during  the  years  1914-1919,  inclusive,  in  relation  to  the 
increases  in  the  cost  of  raw  cotton  and  of  labor  entering  into  their 
production. 

The  most  important  facts  brought  out  in  this  inquiry,  briefly 
stated,  are  as  follows : 

1.  The  country's  total  production  of  combed  yarn  is  much  less 
than  that  of  carded  yarn,  but  combed-yarn  spinning  is  a  very  im- 
portant branch  of  cotton  manufacture.  Its  product  includes  the 
finest  counts  of  yarn  used  in  fine  fabrics,  thread,  and  lace,  as  weU  as 
the  strongest  coarse  counts  used  in  coarse  fabrics,  such  as  automobile 
tires. 

2.  Long-staple  cottons  that  are  used  in  combed-yarn  manufacture 
comprise  only  about  one-eighth  of  the  total  American  cotton  crop. 
In  recent  years  there  has  been  a  large  increase  in  demand  for  combed 
yarn,  which  has  in  turn  resulted  in  increased  demand  and  high  prices 
for  long-staple  cotton.  Domestic  production  of  long-staple  cotton 
has  also  increased,  but  not  enough  to  obviate  the  necessity  of  sup- 
plementing American  growth  by  importations,  especially  of  the 
longest  staples.  Because  of  the  increased  demand  for  long  staples, 
and  their  relative  scarcity  (partly  due  during  the  war  period  to  re- 
duction in  cotton  imports)  there  was  a  greater  advance  in  the  market 
prices  of  long-staple  cotton  than  of  short  staple,  especially  in  the 
last  half  of  1919,  when  the  demand  for  combed  yarns  was  at  its 
highest. 

3.  The  inquiry  of  the  Commission  into  the  costs,  prices,  and 
profits  of  the  combed  cotton  yarn  industry  involved  an  examination 
of  the  books  of  a  number  of  combed-yarn  manufacturers  both  in  the 
North  and  the  South  for  the  years  1914-1919.  The  production  of 
these  companies  was  about  25  per  cent  of  the  country's  total  produc- 
tion of  combed  cotton  yarns  marketed  as  yarn  in  19i9,  the  only  year 
for  which  total  production  of  combed  market  yarns  is  Iniown.  The 
proportion  covered  was  probably  about  the  same  for  1914,  but  it  was 
considerably  smaller  for  the  intervening  years  (1915-1918),  because 
for  those  years  reports  were  secured  from  fewer  companies. 

4.  Throughout  the  period  of  rising  prices  from  1916  to  1919  the 
average  price  realized  for  yarns  advanced  in  about  the  same  pro- 
portion as  the  average  cost  of  cotton  in  yarns,  but  more  rapidly 
than  labor   cost   and   other  conversion   costs,  thereby   resulting  in 

46006-21  444137  ^ 


COMBED   COTTON   YARNS. 


greatly  iripreft|ed -profits  from  1916  to  1919,  inclusive.  (Though  the 
average  "Bellifig  'p'fices  realized  by  manufacturers  increased  greatly, 
their. a^v^llC^  W^s* Jess:  than  the  advance  in  the  current  market  prices 
oiyamt^,  because*  munufacturers  followed  their  usual  practice  of 
selling  a  considerable  part  of  their  output  on  contracts  for  deliveries 
extending  over  considerable  periods,  and  were  therefore  able  to  take 
advantage  of  spot  prices  on  only  part  of  their  product.) 

5.  The  profits  realized  by  manufacturers,  whether  reckoned  per 
pound  or  on  investment  employed,  were  lowest  in  1914  and  highest 
in  1917.  Prices,  however,  were  lowest  in  1915  and  highest  in  1919. 
The  earnings  on  total  investment  employed  by  eight  companies  were 
6.6  per  cent  in  1914,  12.1  per  cent  in  1915,  25.6  per  cent  in  1916, 
37.8  per  cent  in  1917,  26.6  per  cent  in  1918,  and  25.7  per  cent  in  1919. 
They  averaged  23.4  per  cent  on  the  total  investment  for  the  eight 
companies  for  the  six  years. 

6.  During  the  last  half  of  1919  prices  advanced  much  more  rapidly 
than  costs  and  the  profits  realized  were  larger  than  during  any  other 
period  of  similar  length  from  1914  to  1919. 

7.  The  price  advance  of  the  second  half  of  1919  was  in  response 
to  a  very  large  demand  for  combed  yarns,  part  of  which  was  of  a 
speculative  nature.  Manufacturers  with  full  order  books  bid  for 
the  available  supply  of  lon^-staple  cotton,  the  prices  of  which  fol- 
lowed yarn  prices  to  very  high  levels,  though  relatively  not  so  high 
as  yarn. 

8.  Since  May,  1920,  there  has  been  a  great  decrease  in  demand 
for  all  cotton  manufactures,  including  combed  yarns,  in  consequence 
of  which  the  prices  of  both  combed  yarns  and  long-staple  cottons 
have  shown  a  heavy  decline. 

Respectfully, 

Huston  Thompson,  Chairman, 
Nelson  B.  Gaskill. 
John  Garland  Pollard. 
Victor  Murdock. 
John  F.  Nugent. 


SUMMARY  OF  REPORT  ON  COMBED  COTTON 

YARNS. 


The  Federal  Trade  Commission  by  a  resolution  of  the  House  of 
Representatives  (H.  Ees.  451,  66th  Cong.,  2d  sess.)  was  requested  to 
inquire  into  the  increase  in  the  price  of  combed  cotton  yarns  during 
the  years  1914—1919,  inclusive,  to  ascertain  the  cause  or  necessity  for 
and  the  reasonableness  of  increased  prices  during  the  period  in  rela- 
tion to  the  increase  in  the  cost  of  raw  cotton  and  of  labor. 

COMBED  YARN  MANUFACTURE. 

Combed  cotton  yarn  spinning  differs  from  carded  yarn  spinning 
only  by  the  use  of  longer  staple  cotton  and  by  the  introduction  of 
the  combing  process,  which  improves  the  smoothness  and  tensile 
strength  of  the  yarn  by  removing  the  shorter  fibers  and  more  fully 
parallelizing  the  remaining  longer  fibers.  Combed  yarns  are  more 
expensive  to  produce  than  carded  yarns  because  of  the  higher  quality 
of  raw  cotton  used  and  because  of  the  extra  expense  of  the  additional 
combing  process  and  the  extra  loss  of  cotton  in  the  form  of  waste 
resulting  therefrom. 

Combing  is  a  necessary  step  only  in  the  production  of  the  finer 
yarns,  but  it  is  employed  in  making  yarns  for  certain  coarse  fabrics, 
such  as  are  used  for  the  manufacture  of  automobile  tires,  airplane 
cloth,  and  the  like,  where  strength  is  important,  as  well  as  in  the  pro- 
duction of  the  finest  yarns  for  thread,  laces,  fine  woven  fabrics,  and 
fine  hosiery  and  knit  goods. 

The  production  of  combed  yarns  is  carried  on  mainly  in  New 
England  and  North  Carolina.  In  both  regions  are  found  some 
yarn  manufacturers  who  themselves  use  all  their  production  of 
combed  yarns  in  the  manufacture  of  cloth  in  their  own  weaving 
mills;  other  combed-yarn  manufacturers  have  no  weaving  mills, 
but  produce  their  yarns  exclusively  for  sale  as  yarn  on  the  market. 
The  number  of  companies  engaged  primarily  in  the  production  of 
combed  yarns  is  small  as  compared  to  the  number  of  companies 
making  carded  yarns,  and  few  of  those  specializing  in  combed  yarns, 
except  those  engaged  exclusively  in  fine  yarns,  comb  all  of  their 
product. 

Since  the  production  of  combed  yarns  is  confined  largely  to  fine 
yarns  and  to  medium  coarse  yarns  for  particular  purposes,  the 
volume  of  such  yarns  produced,  measured  in  pounds,  is  small  as 
compared  with  that  of  carded  yarns.  Not  more  than  12  or  15  per 
cent  of  the  total  quantity  of  raw  cotton  consumed  in  the  United 
States  is  used  in  the  manufacture  of  combed  yarns.  On  account, 
however,  of  the  uses  made  of  combed  yarns,  the  industry  is  a  more 
important  branch  of  cotton  manufacture  than  its  volume  of  pro- 
duction would  indicate,  and  it  is  growing  more  important  from  year 
to  year. 

FLUCTUATIONS    IN    DEMAND. 

The  growth  of  the  automobile-tire  industry  alone  has  been  a 
large  factor  in  the  growth  of  combed-yarn  spinning.     To  the  in- 

5 


6  COMBED   COTTON   YARNS. 

creased  demand  for  tire  j^arns  there  has  been  added  an  increasing 
demand  in  recent  years  for  fine  fabrics.  These  increased  demands 
have  brought  about  a  situation  in  which  the  quantity  of  raw  cotton 
best  suited  to  combed-yarn  manufacture  has  become  scarcely  ade- 
quate for  the  production  of  combed  j^arns.  Formerly  nearly  all  the 
cotton  used  for  this  purpose  was  l^-inch  staple  or  longer,  but  now 
liV-inch  staple  is  used  to  a  considerable  extent.  This  reduction  of 
length  of  staple  has  been  necessary  in  order  to  meet  the  demand  for 
combed  yarns. 

From  1914  to  1919  the  demand  for  fabrics  made  of  combed  yarns 
increased  more  rapidly  than  the  domestic  production  of  long-staple 
cotton,  thereby  laying  the  basis  for  extremely  high  prices  for  both 
long-staple  cotton  and  for  combed  yarns.  As  the  result  of  the  in- 
creased demand,  market  prices  of  combed  yams  and  of  long-staple 
cotton,  from  which  they  are  made,  advanced  during  the  war  period 
somewhat  more,  respectively,  than  carded  yarns  and  the  short-staple 
cotton  from  which  carded  yarns  are  made. 

Normally  a  considerable  part  of  the  finest  combed  yarn  used  in  the 
country  had  been  imported,  mainly  from  England.  During  the  war 
these  importations  were  reduced  or  entirely  cut  off,  thereby  increas- 
ing the  demand  on  American  spinners. 

Following  the  armistice  there  was  a  marked  slump  in  both  cotton 
and  yam  prices  during  the  first  half  of  1919.  This  price  decline  was 
based  largely  on  the  feeling  that  the  war  being  over  conditions  would 
promptly  revert  to  something  comparable  with  prewar  times.  Con- 
ditions hoped  for,  however,  failed  to  develop,  and  during  the  last 
half  of  1919  the  pressure  of  demand  for  combed  yarns,  a  part  of 
which  arose  out  of  speculative  activities  of  yarn  and  cloth  jobbers  and 
brokers,  was  so  great  that  the  market  price  of  combed  yarns  advanced 
to  unprecedented  levels.  Under  the  stimulus  of  these  high  prices 
manufacturers  bid  against  each  other  for  the  available  supply  of 
long-staple  cotton,  with  the  result  that  the  prices  of  such  cotton  ad- 
vanced far  more  than  those  of  short  staples,  though  not  so  much  as 
combed  yarns. 

COSTS  AND  PROFITS  PER  POUND. 

In  order  to  obtain  exact  data  as  to  the  cost,  prices,  and  profits  of 
combed  yarn  manufacturers  the  Commission  examined  the  books  of 
account  of  a  number  of  representative  companies.  For  the  years  1914 
and  1919  comparative  data  were  obtained  from  11  companies,  and 
for  the  whole  6-year  period  annual  data  were  obtained  for  8  iden- 
tical companies.  The  11  companies  produced  in  1919  about  25  per 
cent  of  the  total  output  of  combed  yarns  marketed  as  yarns. 

The  relative  increases  in  costs,  prices,  and  profits  differed  for  the 
two  groups  of  companies  in  1919  compared  with  those  of  1914.  For 
the  smaller  group  of  companies  the  average  cost  of  sales  per  pound 
of  yarn  in  1919  was  over  two  and  a  quarter  times  that  of  1914,  but 
the  average  price  realized  per  pound  was  nearly  two  and  a  half  times 
that  of  1914,  and  the  average  profit  per  pound  was  nearly  four  times 
as  great  as  in  1914.  For  the  11-company  group  the  cost  of  sales  in 
1919  was  nearly  two  and  two-fifths  that  of  1914;  but  the  average 
price  realized  was  two  and  two-thirds  times  that  of  1914,  and  the 


COMBED   COTTOX   YARNS.  7 

average  profit  realized  per  pound  was  nearly  five  and  three-quarters 
times  that  of  1914. 

The  average  selling  price  in  1919  increased  over  1914  in  about  the 
same  proportion  as  did  the  cost  of  raw  cotton,  which  represents  about 
60  per  cent  of  the  total  cost  of  sales ;  while  labor  and  the  other  items 
of  conversion  cost  did  not  increase  so  much  as  cotton.  Hence,  prices 
advanced  considerably  more  than  the  total  cost  of  sales,  thereby  lay- 
ing the  basis  for  the  much  higher  profits  per  pound  in  1919. 

The  average  price  realized  by  five  companies  for  which  complete 
semiannual  cost  and  profit  and  loss  statements  were  secured  for  1919 
increased  in  the  second  half  of  the  year  much  more  than  costs,  and 
consequently  yielded  profits  per  pound  much  greater  than  those  of 
the  first  half  of  the  year  and  probably  greater  than  those  of  any 
other  like  period  during  the  six  years.  During  the  second  half  of 
the  year,  for  these  five  companies,  the  average  cost  of  sales  was  74.09 
cents  (11  per  cent  greater  than  the  first  half  of  the  year) ;  the  aver- 
age selling  price  per  pound  was  96.53  cents  (25  per  cent  greater  than 
in  the  first  half)  ;  and  profit  per  pound  was  22.44  cents  (over  twice 
that  of  the  first  half  of  the  year). 

Owing  to  the  fact  that  manufacturers  contract  a  considerable 
part  of  their  product  in  advance,  the  average  prices  realized  did  not 
advance  as  much  as  quoted  market  prices.  In  1919  the  average  prices 
realized  by  the  two  groups  of  companies  were  for  the  8  companies 
148  per  cent  higher  than  in  1914,  and  for  the  11  companies  166  per 
cent  higher,  while  the  average  quoted  market  prices  for  17  typical 
yarns  were  245  per  cent  higher  in  1919  than  in  1914. 

PROFITS  ON  INVESTMENT. 

During  the  period  from  1914  to  1919  the  total  capital  investment 
used  in  the  yarn  business  by  the  8-company  group  increased 
from  $3,247,326  in  1914  to  $5,131,320  in  1919,  an  increase  of  58  per 
cent.  During  the  same  period  the  number  of  spindles  operated  by 
the  eight  companies  increased  from  161,780  in  1914  to  188,340  in 
1919,  an  increase  of  but  16.4  per  cent.  Consequently  the  increased 
capital  investment  was  due  less  to  the  installation  of  new  equipment 
than  to  larger  inventory  values  of  raw  cotton,  stock  in  process,  and 
finished  yarns,  and  to  the  increased  amount  of  customer's  accounts 
that  it  became  necessary  to  carry  as  the  prices  of  raw  cotton  and 
yarns  advanced. 

Although  capital  invested  showed  an  increase  of  58  per  cent,  the 
profits  of  the  yarn  business  in  1919  were  such  as  to  yield  a  percentage 
of  net  profit  on  investment  several  times  greater  than  in  1914.  For 
all  companies  covered  in  the  inquiry  the  rate  of  net  profit  before  pay- 
ing interest  on  borrowed  money  or  income  or  excess-profits  taxes,  to 
the  total  capital  invested,  including  capital  stock,  surplus,  and  bor- 
rowed money,  but  excluding  outside  investments,  was  4.2  per  cent  in 
1914  and  31  per  cent  in  1919.  For  the  smaller  group  of  eight  identi- 
cal companies  for  which  data  were  secured  for  all  six  years  the  in- 
crease in  rate  computed  on  this  basis  was  from  6.6  per  cent  in  1914 
to  25.7  per  cent  in  1919.  For  the  six-year  period  the  average  rate 
of  earnings  for  the  latter  group  was  23.4  per  cent.  The  mill  village 
investment  of  those  companies  owning  housing  facilities  for  their 
operatives  has  been  included  as  a  part  of  the  investment  in  the  yarn 
business. 


8  COMBED  COTTON  YARNS. 

Computed  on  another  basis,  namely,  that  of  net  profit  on  the  stock- 
holder's investment,  including  capital  stock  and  undistributed  sur- 
plus, but  excluding  outside  investments,  the  rate  of  earnings  for 
all  companies  (before  paying  income  and  excess-profits  taxes,  but 
after  the  deduction  of  interest  paid  on  borrowed  money)  increased 
from  3.2  per  cent  in  1914  to  43.4  per  cent  in  1919.  For  the  eight  iden- 
tical companies  running  through  the  six  years  the  rate  increased 
from  6.6  per  cent  in  1914  to  32.7  per  cent  in  1919,  and  averaged  29.6 
per  cent  for  the  entire  six  years. 

The  first  effect  of  the  war  as  reflected  in  the  costs,  prices,  and 
profits  of  the  eight-company  group  for  the  year  1915  was  a  consider- 
able reduction  in  all  costs.  As  compared  to  1914  the  average  cost  of 
sales  per  pound  decreased  15  per  cent,  the  average  price  realized  per 
pound  decreased  somewhat  less  (12  per  cent),  and  the  average  profit 
realized  per  pound  increased  15  per  cent.  Failure  of  prices  to  de- 
crease as  much  as  cost  of  sales  accounts  for  the  increase  in  average 
profit  per  pound.  During  the  remaining  years  costs  and  prices  show 
increases  in  each  year  from  1916  to  1919,  inclusive. 

Throughout  the  years  from  1915  to  1919  cotton  cost  comprising,  as 
stated  above,  over  60  per  cent  of  the  total  cost  of  sales  shows  larger 
increases  in  each  year  than  any  other  item  of  cost.  Throughout  the 
six  years  also  the  tendency  was  for  prices  to  keep  pace  in  their  ad- 
vance with  the  advance  in  cotton  cost.  During  1916  and  1917  the 
average  price  realized  advanced  relatively  even  more  than  cotton  cost 
and  in  1918  and  1919  slightly  less  than  cotton.  In  thus  closely  fol- 
lowing the  item  of  cost  showing  the  greatest  increase,  prices  for  the 
period  as  a  whole  advanced  more  rapidly  than  the  total  cost  of  sales. 

Although  average  prices  were  at  their  highest  point  for  the  eight 
companies  in  1919,  average  profit,  whether  measured  in  terms  of 
average  profit  per  pound,  per  dollar  of  sales,  or  per  dollar  of  capital 
invested  in  the  yarn  business,  were  greatest  for  the  year  1917.  Dur- 
ing both  1918  and  1919  the  prices  realized  were  markedly  greater 
than  in  1917,  but  the  price  advances  of  the  last  two  years  were  at- 
tended by  even  greater  advances  in  costs,  the  greater  part  of  which 
advances  occurred  in  cotton  and  labor. 

DECREASED  DEMAND — 19  20. 

Since  May,  1920,  there  has  been  a  period  of  great  decrease  in  de- 
mand for  combed  yarn  products.  The  prices  of  combed  yarns  and 
long-staple  cotton  have  moved  sharply  downward,  cotton  being  now 
at  less  than  the  prewar  level,  though  yarns  are  still  considerably  above 
it.  Because  of  this  market  condition,  combed-yarn  spinners  have 
greatly  reduced  their  production. 

As  prices  of  raw  cotton  and  yarns  fell  manufacturers  apparently 
tried  to  work  off  the  stocks  of  raw  cotton  and  yarn  acquired  during 
the  period  of  high  prices  in  such  a  manner  as  to  result  in  the  least 
possible  loss.  Owing  to  the  strong  financial  condition  of  these  manu- 
facturers generally,  arising  out  of  large  earnings  during  the  period 
of  high  and  advancing  prices,  the  losses  resulting  from  this  period 
of  decline  in  prices  appear  to  have  been  absorbed  without  any  wide- 
spread difficulties  or  failures. 

o 


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